Hankyung Research Institute: Ranked 3rd in National Debt Among Non-Reserve Currency Countries in 2026
[Asia Economy Reporter Seo So-jeong] Unlike other non-reserve currency countries, South Korea is expected to have the fastest increase in national debt among OECD countries due to sustained high levels of fiscal deficits from the outbreak of COVID-19 in 2020 through 2026.
The Korea Economic Research Institute under the Federation of Korean Industries announced on the 17th, "An analysis of fiscal soundness forecasts for non-reserve currency countries from 2020 to 2026 shows that South Korea's increase in the ratio of national debt to gross domestic product (GDP) is 18.8 percentage points, the highest among 17 OECD non-reserve currency countries."
During the same period, the national debt ratios of non-reserve currency countries such as Canada, Iceland, and Hungary decreased by an average of 1 percentage point. These three countries had the highest national debt ratio rankings among non-reserve currency countries as of 2020.
Non-reserve currency countries are those that do not use reserve currencies such as the dollar, euro, yen, pound, or yuan as their legal tender.
South Korea's national debt ratio is projected to surge from 47.9% in 2020 to 66.7% in 2026, with its ranking among the 17 non-reserve currency countries rising from 9th place in 2020 to 3rd place in 2026. As of 2026, Canada ranks first, followed by Israel in second place.
According to the Korea Economic Research Institute, South Korea's fiscal expenditure level, which increased due to COVID-19, is expected to be maintained through 2026. In contrast, other non-reserve currency countries, except Turkey, are expected to reduce government spending during the same period to manage fiscal soundness.
Assuming the scale of fiscal expenditure relative to GDP was 100 in 2020?2021, South Korea's fiscal expenditure from 2022 to 2026 is projected to be 98.6, while the average for other non-reserve currency countries is 91.0.
The deficit size of the integrated fiscal balance, which is the difference between government fiscal revenue and expenditure in the given year, is also estimated to be higher in South Korea than in other non-reserve currency countries.
Assuming the integrated fiscal balance deficit relative to GDP was 100 in 2020?2021, South Korea's integrated fiscal balance from 2022 to 2026 is estimated at 88.0, whereas other non-reserve currency countries average 33.6. This indicates that South Korea's fiscal deficit reduction is relatively small.
The Korea Economic Research Institute analyzed that not only is the speed of South Korea's national debt increase very rapid, but risk factors such as rapid aging and high public enterprise debt are accumulating, posing a significant threat to long-term fiscal soundness.
Additionally, the institute pointed out that although non-financial public enterprise debt, which is not included in the general government debt (D2) used for international comparisons but is effectively government debt due to state guarantees, ranks second highest among OECD countries. Furthermore, the enormous expected costs of unification are also potential risk factors.
Choo Kwang-ho, Director of Economic Policy at the Korea Economic Research Institute, emphasized, "South Korea is a non-reserve currency country without the power to issue currency, so securing fiscal soundness in preparation for emergencies is very important," adding, "Given the significant long-term national debt risks such as low birth rates and aging, it is urgent to legislate fiscal rules and actively restructure expenditures."
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